Question

A company that makes shopping carts for supermarkets and other stores recently purchased some new equipment that reduces the labor content of the jobs needed to produce the shopping carts. Prior to buying the new equipment, the company used 5 workers, who together produced an average of 100 carts per hour. Workers receive $16 per hour, and machine cost was $30 per hour. With the new equipment, it was possible to transfer one of the workers to another department, and equipment cost increased by $10 per hour while output increased by 5 carts per hour.

a. Compute the multifactor productivity(MFP) (labor plus equipment) under the Prior to buying the new equipment. (Round to 4 decimal places)b. Compute the % growth in productivity between the Prior and after buying the new equipment. (Round to 2 decimal places)

Answer 1

Answer:

multifactor productivity before new equipment = 0.91 units per dollar

multifactor productivity after new equipment = 1.01 units per dollar

% change in productivity = 10.99% increase

Explanation:

before:

5 workers x $16 per hour = $80 per hour

machine cost $30 per hour

100 carts per hour

multifactor productivity = units of output / (units of labor + units of capital) = 100 / ($80 + $30) = 100 / $110 = 0.91 units per dollar

after:

4 workers x $16 per hour = $64 per hour

machine cost $40 per hour

105 carts per hour

multifactor productivity = units of output / (units of labor + units of capital) = 105 / ($64 + $40) = 105 / $104 = 1.01 units per dollar

% change in productivity = (1.01 - 0.91) / 0.91 = 10.99% increase

Multifactor productivity measures how many units can be produced with $1 of inputs from two or more factors of production.